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Mercer International reports financial results, declares dividend

Mercer International reported that its second-quarter 2023 operating EBITDA decreased to negative $68.7 million from positive $145.1 million in the second quarter of 2022 and positive $27.5 million in the first quarter of 2023.

In the second quarter of 2023, net loss was $98.3 million (or $1.48 per share) compared to net income of $71.4 million (or $1.08 per basic share and $1.07 per diluted share) in the second quarter of 2022 and a net loss of $30.6 million (or $0.46 per share) in the first quarter of 2023.

Highlights include the following:

• Continued to grow our mass timber business with the acquisition of substantially all of the U.S. and Canadian mass timber assets of the Structurlam group of companies and ramping up operations and its order book
• Second quarter negative operating EBITDA of $68.7 million and net loss of $98.3 million after giving effect to a non-cash inventory impairment of $51.4 million or $0.77 per share
• Quarterly cash dividend of $0.075 per share

In the first half of 2023, operating EBITDA was negative $41.2 million a decrease from positive $299.5 million in the same period of 2022. In the first half of 2023, net loss was $128.9 million (or $1.94 per share) compared to net income of $160.3 million (or $2.43 per basic share and $2.41 per diluted share) in the same period of 2022.

Mercer CEO Juan Carlos Bueno stated, “Our second quarter results were negatively impacted by the overall weakness in the pulp and lumber markets. Lower pulp prices were primarily the result of weak demand for paper caused by weak economic growth and high inventory levels along with slower than anticipated market recovery in post-COVID China. In particular, on average, hardwood pulp prices declined by over $225 per tonne or approximately 32 percent in the current quarter. As a result of this weakness in the pulp market, we took a non-cash inventory impairment of $51.4 million in the current quarter, of which $26.3 million related to hardwood fibre inventory and pulp at our Mercer Peace River mill. The mill had materially built up its hardwood fibre inventory in connection with the start-up of its new woodroom which commenced operations in the recent quarter.

In the recent quarter we had 60 days of downtime (approximately 59,000 ADMTs) at our pulp mills which included 25 days for planned maintenance and 35 days for market curtailment at Peace River and Cariboo mills. All other mills ran very efficiently during the quarter. In the third quarter, we currently expect about 44 days of downtime (54,800 ADMTs) at our pulp mills comprised of 14 days of planned maintenance and an aggregate of 30 days because of logistical backlogs at our Celgar mill and market weakness. Lumber prices were also weak through the second quarter as high interest rates and uncertain economic indicators reduced overall demand.

Overall per unit fibre costs for our pulp segment decreased modestly in the second quarter compared to the first quarter but remained at historically elevated levels. Per unit fibre costs for our solid wood segment increased modestly in the second quarter.

During the second quarter we continued to execute on our long-term strategic plan by acquiring the crosslaminated timber (“CLT”) and glulam assets of Structurlam. As a result of this acquisition, we now own the most modern mass timber facilities in the U.S. which represent approximately 35 percent of the North American CLT production capacity. The acquisition allows us to now provide the glulam products required by many of our CLT customers and better serve customers across North America. We believe that mass timber will continue to grow as a key foundational block in the construction industry. We saw strong growth in our mass timber business as we continued to ramp up operations. Revenues in the current quarter and in the first half of the year were more than double those of the comparative periods.

In the second quarter we also commissioned the lignin pilot production and research and development facility at our Rosenthal mill. This facility can produce approximately 250 tonnes of lignin per year. The facility was completed on time and on budget. A formal “ribbon cutting” ceremony is planned for late August with key government officials, business partners, research institutions and several other stakeholders. We are excited about the potential lignin has as a sustainable green alternative to displace fossil fuels and hydrocarbon-based products, very much in line with our strategy to develop new revenue streams from our existing assets that can contribute strongly to the circular economy.

We finished the current quarter with $445.6 million of liquidity.”

Bueno concluded, “Although the current pulp and lumber markets have negatively impacted our short-term financial results, our cash and liquidity levels continue to be healthy. We are fully committed to executing our strategic plan and rebalancing our asset portfolio. Growing and diversifying our solid wood and bio-product revenues are key components of our strategy. In the current market cycle we will continue to prudently manage our liquidity, lower working capital usage and reduce our discretionary capital expenditures to lower costs.”